Drug Takeover Valuations Soar as Par Pharma Gains 300%: Real M&A
2015-05-18 20:15:56.203 GMT
(For a Real M&A column news alert: SALT REALMNA <GO>.)
By Tara Lachapelle
(Bloomberg) -- To see just how much drug-company valuations
have ballooned, check out Monday’s takeover of little-known
generics maker Par Pharmaceutical Holdings Inc.
Par was taken private in 2012 by TPG Capital for about $1.9
billion. Now it’s selling for more than quadruple that price to
Endo International Plc, another drugmaker. Endo’s stock fell 5.4
percent after it announced the deal, which is its largest and
most expensive. It’s valuing Par at about 66 times 2014 earnings
before interest, taxes, depreciation and amortization and 7.5
times revenue.
Takeover valuations are “going through the roof” in the
pharma and biotech industries, Frank Orthbandt, a London-based
analyst for Fitch Ratings, said in a phone interview. “The
expectation is that prices are continuing to rise and that we’re
coming to an end of this low-interest-rate period in the U.S.,
so you had better bite the bullet and buy now at a very high
valuation.”
Acquisition prices this year for pharmaceutical and
biotechnology companies such as Par are the highest relative to
Ebitda and revenue in at least 20 years, according to data
compiled by Bloomberg based on median multiples for deals. There
was a 63 percent jump in the median Ebitda multiple this year,
the biggest annual increase since 1998.
‘Selling Moment’
Private-equity firms such as TPG are using this as an
opportunity to exit their investments as growth-hungry strategic
buyers show a willingness to pay the rich multiples. Many
leading drugmakers are reeling from patent losses on what were
once their most lucrative products, so they’re paying up to
replenish their pipelines. Others are taking advantage of low
tax rates gained from moving their headquarters to places such
as Ireland.
“This is a selling moment if you’re a financial owner of
companies, and it is a buying and consolidation moment if you’re
a well-capitalized public company that has a stock that is
trading really well,” Marshall Sonenshine, chairman of New
York-based investment bank Sonenshine Partners LLC, said in an
interview on Bloomberg radio Monday.
Fitch Ratings cautioned in a report last month that
acquisitions of biotech companies with only experimental drugs
and no marketed products are risky at these prices and could
weaken the acquirers’ credit quality.
Treatment areas such as cancer, cardiovascular and rare
diseases are where suitable targets are scarce and thus seeing
particularly lofty takeover prices.
For the younger drug developers, it’s based on “a nebulous
calculation of potential peak sales,” Orthbandt of Fitch said.
“In those cases, you have to rely on a lot of assumptions.”
Par Value
Those types of transactions differ from Monday’s takeover
of Par, which does generate revenue. It will add about $1.2
billion of annual generic sales to help Endo overtake Sun
Pharmaceutical Industries Ltd. as the fifth-largest seller of
generic medicines, according to Elizabeth Krutoholow, an analyst
for Bloomberg Intelligence.
Endo said Monday that Par is one of the largest suppliers
of extended-release products -- which are harder to copy and
manufacture than regular generic medicines -- and it’s also been
growing in sterile injectables. Par’s expansion in those areas
may explain the large increase in the company’s value over the
past three years.
“Endo really made it clear during their call that the
injectable business has gotten far more useful and successful,
and also the extended-release business is really where we’re
seeing generics going,” she said. “I think that made Par more
valuable than before it went private.”
For Related News and Information:
Endo Buys Par Pharma for $8.05 Billion Amid Hunt for More Deals
Pharma’s Comeback Deals Keep Drug M&A on Track to Reach Records
Salix Gets Swept Into Pharma Frenzy as Premiums Soar: Real M&A
Real M&A columns: NI REALMNA <GO>
Top deal stories: DTOP <GO>
To contact the reporter on this story:
Tara Lachapelle in New York at +1-212-617-8911 or
tlachapelle@bloomberg.net
To contact the editors responsible for this story:
Beth Williams at +1-212-617-2307 or
bewilliams@bloomberg.net
Elizabeth Wollman
2015-05-18 20:15:56.203 GMT
(For a Real M&A column news alert: SALT REALMNA <GO>.)
By Tara Lachapelle
(Bloomberg) -- To see just how much drug-company valuations
have ballooned, check out Monday’s takeover of little-known
generics maker Par Pharmaceutical Holdings Inc.
Par was taken private in 2012 by TPG Capital for about $1.9
billion. Now it’s selling for more than quadruple that price to
Endo International Plc, another drugmaker. Endo’s stock fell 5.4
percent after it announced the deal, which is its largest and
most expensive. It’s valuing Par at about 66 times 2014 earnings
before interest, taxes, depreciation and amortization and 7.5
times revenue.
Takeover valuations are “going through the roof” in the
pharma and biotech industries, Frank Orthbandt, a London-based
analyst for Fitch Ratings, said in a phone interview. “The
expectation is that prices are continuing to rise and that we’re
coming to an end of this low-interest-rate period in the U.S.,
so you had better bite the bullet and buy now at a very high
valuation.”
Acquisition prices this year for pharmaceutical and
biotechnology companies such as Par are the highest relative to
Ebitda and revenue in at least 20 years, according to data
compiled by Bloomberg based on median multiples for deals. There
was a 63 percent jump in the median Ebitda multiple this year,
the biggest annual increase since 1998.
‘Selling Moment’
Private-equity firms such as TPG are using this as an
opportunity to exit their investments as growth-hungry strategic
buyers show a willingness to pay the rich multiples. Many
leading drugmakers are reeling from patent losses on what were
once their most lucrative products, so they’re paying up to
replenish their pipelines. Others are taking advantage of low
tax rates gained from moving their headquarters to places such
as Ireland.
“This is a selling moment if you’re a financial owner of
companies, and it is a buying and consolidation moment if you’re
a well-capitalized public company that has a stock that is
trading really well,” Marshall Sonenshine, chairman of New
York-based investment bank Sonenshine Partners LLC, said in an
interview on Bloomberg radio Monday.
Fitch Ratings cautioned in a report last month that
acquisitions of biotech companies with only experimental drugs
and no marketed products are risky at these prices and could
weaken the acquirers’ credit quality.
Treatment areas such as cancer, cardiovascular and rare
diseases are where suitable targets are scarce and thus seeing
particularly lofty takeover prices.
For the younger drug developers, it’s based on “a nebulous
calculation of potential peak sales,” Orthbandt of Fitch said.
“In those cases, you have to rely on a lot of assumptions.”
Par Value
Those types of transactions differ from Monday’s takeover
of Par, which does generate revenue. It will add about $1.2
billion of annual generic sales to help Endo overtake Sun
Pharmaceutical Industries Ltd. as the fifth-largest seller of
generic medicines, according to Elizabeth Krutoholow, an analyst
for Bloomberg Intelligence.
Endo said Monday that Par is one of the largest suppliers
of extended-release products -- which are harder to copy and
manufacture than regular generic medicines -- and it’s also been
growing in sterile injectables. Par’s expansion in those areas
may explain the large increase in the company’s value over the
past three years.
“Endo really made it clear during their call that the
injectable business has gotten far more useful and successful,
and also the extended-release business is really where we’re
seeing generics going,” she said. “I think that made Par more
valuable than before it went private.”
For Related News and Information:
Endo Buys Par Pharma for $8.05 Billion Amid Hunt for More Deals
Pharma’s Comeback Deals Keep Drug M&A on Track to Reach Records
Salix Gets Swept Into Pharma Frenzy as Premiums Soar: Real M&A
Real M&A columns: NI REALMNA <GO>
Top deal stories: DTOP <GO>
To contact the reporter on this story:
Tara Lachapelle in New York at +1-212-617-8911 or
tlachapelle@bloomberg.net
To contact the editors responsible for this story:
Beth Williams at +1-212-617-2307 or
bewilliams@bloomberg.net
Elizabeth Wollman